Gap Could Exit China Amid Sluggish Sales – Report

The Gap Inc. is exploring options to revamp its operations in China after reporting dismal sales last week. Per a Bloomberg report, the clothing retailer is considering a potential sale of its Chinese business.

The report added that Gap (GPS) has engaged with Morgan Stanley and is looking for prospective buyers for the China business. Notably, the company entered China in 2010.

However, discussions are at an early stage and according to people close to the matter, the company might decide to retain the operation.

Last week, the retailer reported mixed 4Q results. Adjusted earnings declined about 52% year-over-year to $0.28 per share but exceeded analysts’ expectations of $0.18. However, revenues of $4.42 billion fell 5% year-on-year and missed the Street’s estimate of $4.66 billion. (See Gap stock analysis on TipRanks)

Gap Global’s net sales fell 19% as the brand’s performance was adversely impacted by COVID-19 pandemic-led store closures in China, Europe, Canada, and Japan.

Following the results, Guggenheim analyst Robert Drbul maintained a Hold rating on the stock. In a note to investors, Drbul said, “While we believe there are attractive characteristics to be found in Gap’s Athleta and Old Navy brands (higher margin and growth profiles), we continue to believe there is significant uncertainty around the company’s revenue and earnings trajectory given its largely mall based store fleet.”

Turning now to the rest of the Wall Street community, Gap has a Moderate Buy consensus rating based on 4 Buys and 5 Holds. The average analyst price target of $29 implies that the stock is fully priced at current levels. Shares have gained about 119% over the past 12 months.

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